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Narasimhan report says shut unviable banks; staff up in arms

The All-India Bank Employees' Association today warned of a total dislocation of banking services in the country if the Narasimhan Committee recommendations to close down unviable banks was implemented.

The Committee, set up to suggest banking sector reforms, has recommended the mergers of strong public sector banks and the selective closure of weak banks to prepare the banks for the next century.

"Any attempt to close down any public sector bank or force staff to retire on the plea of surplus workforce, would call for a total dislocation of banking services throughout the country," AIBEA general secretary Tarakeswar Chakraborty said in a statement in Calcutta.

The Committee, headed by former Reserve Bank of India governor M Narasimhan, was appointed by the United Front government to review the progress in banking sector reforms. The committee submitted its recommendations to union Finance Minister Yashwant Sinha yesterday.

Chakraborty said the United Forum of Bank Unions, representing the entire workforce of all commercial banks, would chalk out its course of action soon.

He, however, made it clear that any hasty attempt to privatise the public sector banks and shrink credit to the rural poor besides closure and forced retirement, would be strongly resisted.

The All-India Bank Officers' Confederation has urged the government not to accept the report "in the larger interest of the nation and its economy."

AIBOC secretary S R Sen Gupta said in Calcutta that a two-day meeting would be held in New Delhi from April 27 to decide its action programme.

Gupta said the recommendations indicated that the agenda before the committee was "not to strengthen the economic foundation of the country but to encourage market forces to usher in destabilisation as has happened in East Asian countries recently."

The Narasimhan Committee prefers the creation about two to three megasized international banks and eight to ten large national banks. At the third level, it has suggested many local banks to serve smaller geographical areas.

The committee has also recommended the separation of the regulatory and supervisory powers vested with the Reserve Bank of India and an increase in capital adequacy levels.

The finance minister he was examining the report and would reach his conclusions in a few days time.

The panel strongly opposes the merger of strong banks with weak ones as this would cause in a negative impact on the asset quality of the stronger bank because of the "contaminated portfolio" of the weak bank.

Weak banks must be dealt with separately, the report said, and has recommended corrective measures like recapitalisation for potentially viable weak banks. If it does not work, the panels suggests shutting down the weak banks.

To strengthen the banks to the challenge of globalisation, international risks, and increased competition from foreign banks, the committee has suggested upward revision of capital adequacy norms, dilution of directed credit, adoption of appropriate technology, depoliticising the appointment of functional and non-functional directors on the boards, review of recruitment procedures and remuneration policies, strengthening internal control systems, setting up of appropriate legal framework for enforcing contracts, and protecting the interest of secured creditors and amendments of all major banking laws. It has called for a review of the minimum capital adequacy ratio of 8 per cent of net credit.

M Narasimhan had also chaired the first committee that submitted its report in 1991 on India's banking sector reforms. It is not known whether the second committee made suggestions regarding the privatisation of the government-controlled banks.

The committee has not made any suggestions to deal with the extremely high non-performing assets of Indian banks, but has suggested that the concept of an Asset Reconstruction Fund be considered.